Finance Friday | Budgeting

Budget 2012

I learned this morning how many people read my blog and in which countries; I was surprised to learn in how many different countries. I have to be honest there were a few, that were unfamiliar! In the UK, later this month, the Chancellor of the Exchequer will present his budget for the coming year. We too have to budget and be careful with our money wherever we live in the world. This is a matter of understanding money and setting priorities; essentials are more important that luxuries and then keeping proper accounts.

Accounts

It is useful to keep running accounts that show what money we have coming in and what money is going out. Businesses do this to help them keep control of the business and to understand their profits and cash flow. They often have accounts for different departments in the business and they post data to the main accounts book. All the sales from different checkouts in a supermarket, for example, are posted to a central computer file. You can do this with your accounts and keep a separate account for food, for example, which will help you reduce the cost of this essential. Some essentials like housing are hard to cut but others like telecommunications are easier. You can use your cell phone less or keep calls shorter. You can save energy and reduce gas and electricity bills. You can cut debt and therefore pay less interest to finance houses and banks. This leaves you more money to spend on holidays and other luxuries.

You might also like to do do a balance sheet just like a business and put down everything you own. If you read yesterday’s thrifty blog you will know I have just bought a new laptop for £399. On a balance sheet this might go down as cost £399, but in a years time, I would reduce the value to take account of depreciation and at least 75% of the cost has already depreciated. A new car doesn’t depreciate by quite as much, but does depreciate a lot in the first year; in fact you can lose thousands as soon as you take it out of the showroom.

Appreciation and depreciation

You should have some assets that appreciate on your balance sheets rather than depreciate; such as investments and property. Hopefully, you will have more appreciating assets than depreciating assets; but few of us are in that desirable position. You can also take account of inflation and the devaluing of money by central banks and then you can see that even the cash in your bank account and in your purse or wallet is depreciating. In the UK cash has been depreciating by around 5% per year and so someone with a million in cash is actually losing £50,000 a year! That’s a £1,000 a week nearly; more than what most people earn! Millionaires do tend to invest their cash though and usually in a diverse range of investments. People with a lot of assets as opposed to cash tend to be called millionaires too; few people have a million in cash. In fact some banks and companies that do have large sums in cash (in accounts) find it difficult to find places to put it. This is why they buy bonds from European countries with a lot of debt. They have that much money they can afford to take the risk for a decent return, that the governments won’t default on their debts. However, many banks are now having to settle for a lower return on Greek bonds as a result of a settlement. Imagine winning £100 millions on the European lottery, it would present a few problems investing that sort of money! It would be devalued at up to £5 millions a year if you didn’t invest it.

Free stuff

If you keep good accounts and know where your money is coming from and how much and more importantly where is goes and how much, you can save a lot of money. I was asked f I wanted the latest version of Microsoft Office yesterday for £90 extra on the price of my new laptop. I have a old copy of Office 2003 and so rather than install it using the setup file, I used a install program called Pro 11 on my Office CD and then went to download the Microsoft converter pack to convert newer files to my old format. It saved me paying £90 for a new copy. I’ll also get a free copy of Norton antivirus on a 12 month trial, but I have to take my receipt and to get that at the weekend. You can also save money on software by asking about student editions.

Some things depreciate quickly and software is one of them as it goes out of date and so get as much free software as possible. I went to download.com and downloaded Primo PDF for Windows, it’s free! It makes PDF files and also reads them. I also also installed Ccleaner and I will use Avast! antivirus at some stage. I downloaded the Windows Live suite of software yesterday. That’s the email client, instant messaging program, Windows Live photo gallery, Windows Live Movie Maker and the software I’m using to write this; Windows Live Writer. I can upload this blog to WordPress and then upload another copy to my blog on AZillionIdeas.com, it links to Blogger, WordPress or self hosted blogs.

My last laptop was a Hewlett Packard and it lasted less than 2 years and so that depreciated fast! That is why I have chosen Samsung this time and it says the batteries last longer, which is also a fast depreciating asset.

Doing your accounts properly, either using your computer and software like Excel or just using a hard backed notebook and doing them manually can give you a good idea of where your money comes from and where it goes and you then have more control. I use a book because it’s quicker and keep a running balance of my bank account and in the back of the book is a list of appreciating assets. In these uncertain times it’s hard to know if some assets like equities are appreciating, but I think I have more more appreciating assets than depreciating assets like my laptop, car, household goods, etc. I’m getting richer (not by much) rather than poorer!

There are more amazing blogs on the Home Page. So are you getting richer with appreciating assets or poorer with depreciating assets? Please comment!